FEDERAL COURT OF AUSTRALIA

Foyster v Australian & New Zealand Banking Group Ltd [2000] FCA 1254

LLOYD FOYSTER v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED

N 374 OF 2000

BEAUMONT, MARSHALL AND LEHANE JJ

5 SEPTEMBER 2000

SYDNEY

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal be dismissed.

2.         The appellant pay the respondent’s costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

1                     This is an appeal from a sequestration order made on 31 March 2000 by a Judge of the Court against the estate of the appellant, Mr Foyster.  The petition on which the order was made was based on a debt of $47,899.52, being an unsatisfied judgment of the Supreme Court of New South Wales for unpaid costs.

proceedings before the primary judge

2                     Mr Foyster opposed the petition on two grounds, stated as follows:

“1.       The respondent is solvent and able to pay his debts as and when they fall due;

2.         The respondent offers to pay the sum referred to in the petition into Court.”

3                     As to the latter ground, the primary Judge recorded that, at the commencement of his submissions in reply, counsel for Mr Foyster offered (on behalf of Mr Foyster) to pay the sum of $47,899.52 to the respondent (the Bank) forthwith and to consent to an order that Mr Foyster pay the Bank’s taxed costs of the petition.  The offer was not accepted.  Relying on McIntosh v Shashoua (1931) 46 CLR 494 at 505, 508, 521, the primary Judge held that the Bank was entitled to refuse a tender of payment of the debt on which the petition was based and to proceed with the petition.  His Honour was plainly right to do so, and the contrary was not argued on the appeal.

4                     The first ground relied on s 52(2)(b) of the Bankruptcy Act 1966 (Cth), which provides:

“(2)     If the Court … is satisfied by the debtor:

(a)        that he or she is able to pay his or her debts;

            …

            it may dismiss the petition.”

The primary Judge held (correctly and uncontroversially) that the Court had a discretion to dismiss the petition under that provision which arose only if the Court was satisfied (Mr Foyster bearing the onus) that Mr Foyster was able to pay his debts.

5                     The primary Judge summarised the evidence about Mr Foyster’s income and assets as follows:

“The only income of which the respondent gave evidence was receipt of a pension.  On the respondent’s evidence he has:

–          $44,902.77 cash, or its equivalent;

–          goods consisting of the Patek Phillipe wristwatch, the two Caulfield Cups and [certain] mining equipment;

–          44% of Foyster Holdings Pty Ltd which holds 65% of TT [Tasmanian Titanium Pty Ltd] and has $148,000 in cash or receivables.”

As to the last of those assets, his Honour commented:

“No specific evidence was adduced as to the value or realisability of the respondent’s share in Foyster Holdings Pty Ltd.  In his oral evidence the respondent said that Foyster Holdings has reduced its interest in TT from 70 per cent to 65 per cent by the sale of a 5 per cent interest to a newly incorporated company, Tasmanian Titanium Holdings Pty Ltd, for the sum of $148,000, part of which was paid on 21 March, and the balance of which was expected to be paid on 22 March 2000.”

6                     The primary Judge made the following finding as to Mr Foyster’s liabilities:

“The respondent has debts and liabilities consisting of:

–          $47,899.52 the subject of the bankruptcy notice.

–          $10,000.00 sundry debtors, including legal expenses.

–          Liabilities under orders for costs made in favour of the Bank in proceedings before Harrison M on 8 December 1997 (claim: $17,662.63) and Emmett J on 27 July 1999 (claim: $31,789.85) totalling $49,452.48.

–          An order for costs made by Windeyer J in favour of the Bank on 22 March 2000.

–          Claims by some family members of unspecified amounts payable in unspecified circumstances, to which it will be necessary to return.

His Honour proceeded to find that the amount of a debt which Mr Foyster owed to his son, David, was relatively small; other members of the family had claims against Mr Foyster of an uncertain amount; whether those family members were pressing their claims, or were “prepared to wait until fortune favours the respondent”, did not appear from the evidence.

7                     His Honour found that the chattels owned by Mr Foyster (Caulfield Cups, watch and mining equipment) might be realised for between $32,000 and $40,000.  His financial position might, therefore, be summarised as follows:

“Liabilities                                                                 Assets

$ 10,000   –     Sundries                                     Cash:                              $45,000

$ 47,889   –     Bankruptcy notice                      Chattels:      $32,000 – $40,000

$ 49,452   –     Untaxed costs                                                 $77,000 – $85,000

$107,341 ”

That left out of account the unquantified claims of family members.  If the view were taken that the costs of proceedings before Master Harrison would not be payable in the reasonably near future, the liabilities would still be about $89,678, leaving claims of family members out of account.

8                     His Honour proceeded to make the following finding as to the value, and realisability, of Mr Foyster’s shareholding in Foyster Holdings Pty Ltd:

“As I have said, there is no direct evidence as to the value of, or realisability, of the respondent's shareholding in Foyster Holdings Pty Ltd.  It is a 44 per cent interest in a private company, the balance of which is held by family members and/or their associates.  I do not think that I can, or that I should, make some estimation of the value of a 44 per cent interest in the company based upon the sums for which certain of its assets have been insured.  Nor can I, or should I make some estimation of the value of that interest by reference to the fact 5 per cent of the shares which it held in TT realised $148,000.  Still less could I assume that the shareholding could be realised, or borrowed against so as to raise any particular sum of money within a comparatively short time frame.  Whilst TT has acquired the King Island Project, the evidence does not establish that it has, as yet, substantially commenced to exploit that project.  Thus the respondent’s shareholding in Foyster Holdings Pty Ltd cannot be relied upon to overcome the shortfall to which I have referred, or to establish solvency.”

The King Island Project comprised mining tenements, real property, plant and equipment and other assets purchased from Australian Titanium Minerals Ltd under an agreement made on 19 August 1999: there was a draft report which suggested that the value of tailings deposits, constituting part of the project, might lie somewhere between $4.35 million and $12.4 million.

9                     On the basis of the finding to which we have referred, the primary Judge was not satisfied that Mr Foyster was able to pay his debts.

the appeal

10                  The five grounds stated in the notice of appeal are as follows:

“(1)     His Honour erred as a matter of law in taking into account in assessing the appellant’s solvency an amount of $49,452.48 in relation to a bill of costs dated 21 March 2000 (para 20);

(2)       His Honour erred as a matter of law in failing to take into account in assessing the appellant’s solvency the insured value of the assets of the company in which the appellant had a 44% interest (para 35);

(3)       His Honour erred as a matter of law in failing to hold that he should take into account the appellant’s offer to pay the sum demanded into court, or otherwise secure it;

(4)       His Honour erred as a matter of fact in failing to find on the available evidence that the appellant was solvent;

(5)       His Honour erred as a matter of fact in failing to hold on the available evidence that the appellant had satisfied the onus of demonstrating his solvency.”

11                  As we have mentioned, it was not suggested in argument that the offer of payment of the debt on which the petition was based was itself a ground on which a sequestration order should have been refused.  Counsel for Mr Foyster submitted that the primary Judge had not correctly applied the well known and well established test stated by Barwick CJ (with the agreement of McTiernan and Windeyer JJ) in Sandell v Porter (1966) 115 CLR 666 at 670:

“The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity.  It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.”

12                  One of the grounds of appeal was that his Honour erred in taking into account, as liabilities, certain untaxed costs and Mr Foyster’s written submissions include an argument to that effect.  We see no reason to doubt, however, that it was appropriate to take untaxed costs into account on the footing that they would be taxed and that Mr Foyster would be required to pay them in the reasonably immediate future: Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527.  It may be observed that his Honour did not take into account the most recent order for costs – that made by Windeyer J – and found that, even if the relatively small amount of costs payable under the order of Master Harrison were left out of account, the liabilities to be met by Mr Foyster in the reasonably near future would still exceed the realisable value of his assets.

13                  Argument on the appeal concentrated on the primary Judge’s finding to the effect that no realisable value should be attributed to the shareholding in Foyster Holdings Pty Ltd.  It was said that his Honour erred in failing to attribute a value to the shares based upon the sums for which certain of the company’s assets were insured and upon evidence of a transaction under which some of its shares in TT had been sold for $148,000.  We were referred to certain evidence given by Mr Foyster in re‑examination and in further cross‑examination on that transaction, but we do not think that that evidence throws any doubt on the primary Judge’s findings.  The property owned by Mr Foyster was, as the primary Judge found, shares in Foyster Holdings Pty Ltd.  That, as his Honour held, was a private company owned by Mr Foyster, members of his family and certain of their associates.  The question was whether that property could be realised, for example by sale or secured borrowing, within a reasonably short period.  In our view, his Honour was justified in concluding that the limited evidence as to the value of the company’s assets did not enable him to find that the shares held by Mr Foyster could be realised, in the reasonably near future, for any particular sum, or at all.

14                  Counsel for Mr Foyster sought, on the hearing of the appeal, to rely, under s 27 of the Federal Court of Australia Act 1976 (Cth), on certain further evidence which he asked the Court to receive.  That evidence related to events which had occurred since the sequestration order was made.  For reasons which we gave in the course of the hearing, we declined to receive the evidence.  We did so relying, in part, on the proposition that an appeal to the Full Court from a decision of a single judge is an appeal in the strict sense, a proposition established by the decision of the Full Court in Duralla Pty Ltd v Plant (1984) 2 FCR 342.  Counsel for Mr Foyster indicated that, should the matter go further, he would submit that Duralla (which, in the absence of any submission that it was clearly wrong, we have necessarily followed) was wrongly decided: a question which may arise in the light of the decision of the High Court in CDJ v VAJ (No 1) (1998) 157 ALR 686, but which did not arise for decision in that case.

15                  The remaining submissions made on behalf of Mr Foyster nevertheless sought support in certain of the matters, characterised by counsel as “uncontroversial”, which might have been established by the proposed further evidence: particularly, that Mr Foyster had, since the sequestration order was made, paid his sundry creditors and had tendered bank cheques in payment of the debt on which the petition was based and of the particular amounts of costs which the primary Judge took into account in making his findings about the extent of Mr Foyster’s liabilities.  Since none of the further evidence was received, it was not open to Mr Foyster to rely on those matters in any event.  But the argument was that because Mr Foyster had, since the sequestration order was made, been able to obtain a sufficient sum of money to discharge his debts, it followed that the primary Judge must necessarily have been wrong in failing to be satisfied, when he made the sequestration order, that Mr Foyster could pay his debts.  But, self‑evidently, the one does not follow from the other.  And it should be remembered that the Bankruptcy Act itself, in s 153A, contemplates that a bankrupt will, after a sequestration order has been made, pay his or her debts in full and provides for an annulment of the bankruptcy, if the trustee is satisfied that that has been done, on the date of the last payment.

16                  Finally, we think it is appropriate to mention some obvious pitfalls along the path on which counsel for Mr Foyster sought to lead us.  Ordinarily, where further evidence is admitted on an appeal and the Court is satisfied that it would have produced a different result at trial, the consequence, the appeal being allowed, is that the matter is remitted for a new trial (as would have been the result in CDJ had the order of the Full Court of the Family Court been upheld).  In this case, however, what counsel apparently had in mind was that we would be asked, on the basis of the proposed further evidence relating to events since the trial, to find that the primary Judge had reached an incorrect conclusion, to reach the contrary conclusion ourselves and then to exercise the discretion under s 52(2) of the Bankruptcy Act in favour of Mr Foyster.  But such a course would require (as indeed counsel contemplated) that the Bank have the opportunity to cross‑examine the deponents of affidavits and also that the Bank have an opportunity to lead evidence in response, not usually a procedure appropriately engaged in on an appeal: and all directed, apparently, not towards ascertaining the position at the time the matter was before the Full Court but at the time, some months ago, when the matter was before the primary Judge.  If, on the other hand, we were authorised – contrary to current Full Court authority – to engage in a rehearing, so as to deal with the petition ourselves, that would require us to undertake an exercise of a similar kind to that undertaken by the primary Judge, including no doubt receiving evidence directed to satisfying us of the matters which s 52(1) requires to be proved: an equally inappropriate proceeding.

17                  No doubt it is true that the matter might be remitted to a single Judge for a rehearing of the petition and, if that were done, there would be no question of lapse of the petition under s 52(4) despite the setting aside of the original sequestration order (Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 156)).  Nevertheless, having regard to the policy of the law that bankruptcy petitions be dealt with promptly, the lack of attraction of such a course is obvious.

18                  It is unnecessary to reach any conclusion about any of those difficult matters.  They merely emphasise the need for caution, whatever the nature of an appeal to the Full Court of the Court, in adopting a course of the kind which counsel for Mr Foyster asked us to take.

CONCLUSION

19                  For the reasons we have given, the appeal is dismissed with costs.

Associate:

Dated:              5 September 2000